Gaming Board calls influx of sweepstakes video games illegal

Illinois lawmakers promised years ago to finally get rid of video poker machines that had long gone unregulated and untaxed in dark corners of bars across the state.

In turn, they legalized video gambling machines that were taxed and tightly controlled.

But this year, lawmakers quietly approved a one-sentence change to the law — a move that may help usher in a new wave of slotlike machines called "coupon kiosks," even in Chicago and certain suburbs where officials have said "no" to legalized video gambling.

Already in several Chicago locations, the loosely monitored machines take cash, let users play slotlike games and cash out winnings.

Machine owners say the games are legal because customers receive a coupon for online merchandise and can play for free, elements that follow laws for sweepstakes promotions, such as the recurring Monopoly Game at McDonald's.

"(The machine's) primary focus is to promote those products, and the opportunity to play a game is secondary," said Jeffrey Steinback, who represents Windy City Promotions, which is distributing some of the new machines.

The Illinois Gaming Board issued a rare opinion this month declaring such machines illegal. Pointing to that opinion, a Chicago police spokesman said, "We have been actively looking into this issue."

Meanwhile, a top crime watchdog group is warning that the machines will create exactly what lawmakers had pledged to eradicate: an underground gambling industry reaping millions of dollars with little government oversight.

A change in law pushed this year by state Rep. Lou Lang, D-Skokie, is being used to strengthen the legal case for the coupon kiosk machines. Yet Lang never saw the machines he was helping, he told the Tribune, nor had he heard of the controversy they've caused in other states.

"I was just convinced at the time that this was something that looked like a gaming device but wasn't gaming," Lang said. "It was a sweepstakes."

The controversy is just the latest example of Illinois' struggle to bring some forms of gambling out of the shadows and to regulate and tax them.

Legal video gambling machines are now raking in millions of dollars at licensed bars and clubs and providing money for state construction projects. But officials have at the same time had trouble keeping a tight leash on that expansion while curtailing other gambling avenues.

The games' tall arcade-style cabinets were labeled "Products Direct Coupon Kiosk." The screens flashed what appeared to be stock pictures of different products: a table, a laptop, sunglasses. Written in several places was the phrase, "No Purchase Necessary."

Here's how one of the machines worked: When a customer fed money into the machine, it printed out a small receipt that said it is was a coupon for double that amount for products at a website. So, $5 got a $10 coupon.

According to the website, the coupon's value is typically limited to 30 percent of an item's price. The website offered about 65 products, including knockoff sunglasses, coffee and tea. The sunglasses cost about $25, shipped. An electric guitarcost about $116, shipped.

Machine promoters say that is the whole purpose of the machine — to drive customers to the website — and the customer is buying a product in the form of a coupon, not gambling.

After the coupon is printed, the customer can play slotlike games, or hit a button to reveal any winnings automatically. The winnings, if any, can be printed on a receipt that a bartender will exchange for cash.

Machine promoters say this is not illegal gambling, but legal sweepstakes, in large part because there is a way to play the games without money.

Here's how to play withoutpaying, according to the company's website: A player can obtain a code from the machine, write it on an index card along with the machine's location, add his or her personal information and then wait up to a month to receive a code back through the mail and then plug the code into the same machine for a $1 credit.

It remains unclear how many of the machines are operating in the Chicago area. Steinback would say only that there is a significant number and a larger rollout is planned.

A Tribune reporter played two such machines at two Chicago bars this month. After calling the bar owners, the Tribune returned a week later, and the machines were either turned off or removed. Messages left for the owners were not returned.

The day before the Tribune's initial visits, the Illinois Gaming Board had posted a one-page statement about the machines on its website. The statement said the board deemed "electronic product promotion sweepstakes kiosks" to be illegal gambling machines and a felony to possess.

A board official declined further comment.

The Chicago Crime Commission also weighed in. The nonprofit's executive Art Bilek said the machines are just another attempt to walk a fine legal line and cash in on the demand for gambling — especially in the vacuum created after lawmakers made it a felony to possess the old video poker machines.

"You put in a dollar, the wheels spin and you lose your dollar or win a dollar," Bilek said. "They are gambling machines by any stretch of the imagination."

The legal line

For decades, so-called "gray machines" operated in bars and restaurants across the state, largely unabated. The crime wasn't in possessing the video poker games but in allowing customers to cash out winnings. Proving the latter required costly and laborious undercover operations.

In legalizing video poker, supporters, including Lang, argued they would ban the illegal machines at the same time, effectively creating a net decrease in gambling machines.

The 2009 law allowed bars, clubs and truck stops to have up to five machines that are taxed. Owners and operators face vetting by regulators. Towns that don't want the machines can opt out or keep rules on the books banning the games. And many have, including Chicago.

The law also made it a felony to possess machines that award and record credits based on chance — legal jargon for the old gray machines. Police started busting bars with such machines last year when the legal video gambling machines were first rolled out.

Then this year Lang drafted a tweak to the video gambling law. Consisting of one sentence, the legislation basically said the ban on gray machines wouldn't apply to machines that would otherwise be legal, including those for charity raffles and sweepstakes.

Lang said the move came in part at the urging of a lobbyist hired by the Casino Law Group, which is now tied to the new coupon kiosks.

During a House hearing in March,Lang let firm attorney Cory Aronovitzexplain the legislation to lawmakers. Aronovitz called it a "technical cleanup."

"Arguably, without this key clarification, several common legal activities would not be allowed in a video format," one paper says. "These include raffles or charitable games which utilize a video screen."

In another paper — titled "If you play your cards right, it's not gambling" — the firm hintsat the bright future for the business in Illinois since the machines don't face the same location restrictions as legalized video gambling machines.

"Electronic product promotion kiosks have no such restrictions right now. So, they can be placed in liquor stores, restaurants with no liquor license, convenience stores, dollar stores, laundromats ... the sky is truly the limit," the paper concludes.

Windy City Promotions is planning to open a local retail outlet in the coming weeks so customers could use the coupons to buy items in person, Steinback said.

Imported to Illinois

Sweepstakes rules have been used to further video gambling in several states, leading to legal battles with officials.

In Florida and Ohio, sweepstakes laws have led to hundreds of Internet cafes, where patrons buy Internet time or phone cards and can then play online slotlike games.

Federal investigators arrested dozens of people tied to one such firm in Florida, prodding the governor this year to approve a new law aimed at shutting down the cafes. Ohio lawmakers also approved stronger rules this year.

Steinback said the problems in those states are not comparable, in part because the company he represents sells real products people want and not Internet time or phone cards.

Yet, a similar business model was used in South Carolina and met stiff resistance.

The South Carolina Supreme Court banned video poker in that state at the turn of this century. A decade later, new slotlike machines started popping up. Some gave customers a coupon to buy products at a website and provided a mail-in code for free play.

"They just appeared and sort of multiplied before anyone appreciated how vast the problem was," said Adam Whitsett, an assistant attorney general for the state.

State law enforcement stepped in to try to eradicate them, calling them illegal gambling machines. At the height of the efforts, as many as 100 related legal cases were going on simultaneously until lawmakers tightened the rules.

"There were thousands and thousands of machines under this guise of sweepstakes machines," Whitsett said. "We still see (the machines) out there."